CAMBRIDGE INTERNATIONAL EXAMINATIONS

Cambridge International Advanced Level

MARK SCHEME for the May/June 2015 series

9707 BUSINESS STUDIES

9707/31 Paper 3 (Case Study), maximum raw mark 100

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.

Mark schemes should be read in conjunction with the question paper and the Principal Examiner
Report for Teachers.

Cambridge will not enter into discussions about these mark schemes.

Cambridge is publishing the mark schemes for the May/June 2015 series for most
Cambridge IGCSE®, Cambridge International A and AS Level components and some
Cambridge O Level components.

® IGCSE is the registered trademark of Cambridge International Examinations.

 Page 2 Mark Scheme Syllabus Paper
Cambridge International A Level – May/June 2015 9707 31

1 Analyse the benefits and limitations to CCF of an extensive product portfolio. [10]

Knowledge Application Analysis

3 marks 3 marks 4 marks

Level 2 3 marks 3 marks 4–3 marks

Good knowledge of More than one Good use of theory and/or
benefits and/or limitations benefit/limitation explained reasoned argument to
of extensive product in context explain benefits and
portfolio limitations

Level 1 2–1 marks 2–1 marks 2–1 marks

Knowledge of product Some application to case Some use of theory and/or
portfolio and/or benefits reasoned argument to
and/or limitations explain benefits or limitations

Answers could include:

• Product portfolio – range of products produced/sold by a business
• Benefits – some products falling in sales (e.g. burgers) and new products replace them –
trying to replace decline products for growth products
• Able to satisfy more consumers/market segments e.g. Indian consumers with curries etc.
Should lead to increased sales
• Limitations – different products in different market segments will require different marketing
and this could stretch the CCF marketing budget too thinly. Is this why demand for some
products is falling?
• Higher storage costs of holding inventories of a wider range of goods – is this why unit costs
are not falling as expected?

2 (a) Using data in Appendix 1, calculate:

(i) CCF’s gearing ratio [3]

Non - current liabilities × 100

Shareholde rs' equity + N - C liabilities 1 mark

78 2 marks
× 100
163

47.9% 3 marks

Or 1 mark
Non - current liabilities
× 100
Shareholders' equity

78/85 × 100 2 marks

91.8% 3 marks

OFR applies

© Cambridge International Examinations 2015

Page 3 Mark Scheme Syllabus Paper
Cambridge International A Level – May/June 2015 9707 31

(ii) the current dividend yield ratio assuming the proposed dividend is paid. [5]

Dividend yield =
Dividend per share 1 mark
× 100
Share price

Dividend per share =

Total dividend
No. of shares issued 1 mark

$35m 1 mark
= $0.3
100m

$0.35 1 mark
× 100
$3.00

11.67% 5 marks

© Cambridge International Examinations 2015

Page 4 Mark Scheme Syllabus Paper
Cambridge International A Level – May/June 2015 9707 31

(b) Using your results from (a) and other information, recommend to CCF which source(s)
of finance should be used to pay for the new meat processing factory. [14]

Knowledge Application Analysis Evaluation

2 marks 2 marks 5 marks 5 marks

Level 2 2 marks 2 marks 5–3 marks 5–3 marks

At least two Application of two Good use of theory Good judgement
relevant points or more points to to answer question shown
made case/use of results

Level 1 1 mark 1 mark 2–1 marks 2–1 marks

One relevant point Some application Some use of theory Some judgement
made to case/use of one to answer question shown
result

Answers could include:

• Long term finance needed – $25m for P and $24m for Q
• Sale of existing site – could raise $5m but how accurate is the valuation? Is it historic
cost or current valuation? Might CCF need more “chicken capacity” if new factory
produces higher output?
• Borrow in form of long term loans – assuming all capital is borrowed (candidates might
have different assumptions) then gearing ratio becomes 54.8% (P) or 54.5% (Q)
• Is this too high? Might be acceptable at times of low interest rates but CCF might be
stretched to pay back interest if rates increase
• Cut dividend e.g. by $25m (P). This would leave dividend of $10m = 10 cents per share
with dividend yield (assuming same share price) of 3.33%
• Shareholders may sell shares to gain better return elsewhere – although this could
actually increase DV ratio
• Sell more shares e.g. rights issue but shareholders are not happy and may not be
prepared to buy these rights – could hit share price again if more shares come on to the
market.

Evaluation:
• Judgement; regarding most suitable sources(s).
• Combination of sources might be better to balance the risk (not such high gearing) and
keep more shareholders content (not lower dividends by full amount of £25m)

© Cambridge International Examinations 2015

 Page 5 Mark Scheme Syllabus Paper
Cambridge International A Level – May/June 2015 9707 31

3 Recommend which of the two sites CCF should choose for its new meat processing
factory. Justify your answer with an analysis of the data in Table 1 and other relevant
information [16]

Knowledge Application Analysis Evaluation

3 marks 3 marks 5 marks 5 marks

Level 2 3 marks 3 marks 5–4 marks 5–4 marks

Three relevant points Application of two or Good use of theory Good judgement
made or 3 more points to case/ to answer question shown
appropriate 3 accurate
formulae/attempted calculations
calculation

Level 1 2–1 marks 2–1 marks 3–1 marks 3–1 marks

Two/one relevant Some application to Some use of theory Some judgement
points made or case/two/one to answer question shown
two/one appropriate accurate calculation
formula/attempted
calculation

Answers could include:

• Payback: P = 3.57 years; Q = 4 years
• Some slight benefit to P as capital can be paid back earlier BUT interest rates and low
anyway
• ARR = P = 28%; Q = 25%
• Slight benefit to P but inaccurate data might cancel this out
• Annual B–E output: P = 1.467m; Q = 1.412m
• Slight advantage to Q as less output needed to BE which slightly reduce annual risk of
making a loss
• Lower wage rates at Q due to higher unemployment?
• Lower transport of finished products from P? Food could be slightly fresher from P (marginal
point)
• Less chance of existing employees transferring to Q – is this a good or bad point from CCF’s
viewpoint?

Evaluation:
• Overall judgement needed – and supported
• How reliable is data – it might be biased if Ops Director compiled the data
• Other information? e.g. discount factors to be used for DCF

© Cambridge International Examinations 2015

 Page 6 Mark Scheme Syllabus Paper
Cambridge International A Level – May/June 2015 9707 31

4 Discuss the importance to CCF of corporate social responsibility when aiming to maximise
shareholder value. [16]

Knowledge Application Analysis Evaluation

3 marks 3 marks 5 marks 5 marks

Level 2 3 marks 3 marks 5–4 marks 5–4 marks

At least three relevant Application of two or Good use of theory Good judgement
points made more points to case to answer question shown

Level 1 2–1 marks 2–1 marks 3–1 marks 3–1 marks

One or two relevant Some application to Some use of theory Some judgement
points made case to answer question shown

Answers could include:

• Definition of shareholder value – maximising long term returns to shareholders in terms of
dividends and share prices
• Definition of CSR – pursuing objectives other than maximising shareholder value e.g.
environment or other stakeholder objectives
• Indications that the business is not focusing on CSR at present:
• Quality and supply problems causing difficulties for retailers
• Public health issues regarding food poisoning from CCF products
• Employee contracts have worsened conditions and relocation might put jobs at risk
• Animal pressure groups might be concerned about chicken welfare
• Perhaps these factors have contributed to falling share price?
• Potential investors might be frightened off by these problems and the bad publicity resulting
from them
• Concentrating on low cost strategy should increase shareholder value but it appears not to
be working at present

Evaluation
• Proposed cut in dividends could mean that maximising short term returns to shareholders
may not be a priority
• Is it a matter of time before these non-CSR changes start to cut unit costs and increase
profits and returns to shareholders?
• Perhaps it is important for CCF to be more socially responsible to increase workers’
productivity, reduce risks of bad publicity etc. and this is the way to improve profits and
shareholder returns in the long term

© Cambridge International Examinations 2015

 Page 7 Mark Scheme Syllabus Paper
Cambridge International A Level – May/June 2015 9707 31

5 Discuss the extent to which workforce planning for the new factory could ensure effective
management of human resources [16]

Knowledge Application Analysis Evaluation

3 marks 3 marks 5 marks 5 marks

Level 2 3 marks 3 marks 5–4 marks 5–4 marks

At least two relevant Good application of Good use of theory Good judgement
points made + points to case to answer question shown
knowledge of
workforce planning

Level 1 2–1 marks 2–1 marks 3–1 marks 3–1 marks

One relevant point Some application to Some use of theory Some judgement
made and/or case to answer question shown
knowledge of
workforce planning

Answers could include:

• An HR plan which has the aim of delivering the right people in the right quantities for the
business to achieve its objectives
• Has not been good in the past – e.g. the failure to supply sufficient number of employees
during peak periods
• New location will need new workforce plan – so it will be essential due to the relocation
• Right people – to operate food processing machines, maintain new technology equipment,
food inspection specialists etc.
• Right numbers – to meet variable demand for food products e.g. during festival periods
• Without an effective WP the business will fail to meet its objectives

Evaluation:
• Is it sufficient to ensure efficient management of HR? Probably not as there are many other
issues at CCF too.
• Low cost (“hard”) HR strategy seems to have led to poorly motivated employees (quality and
supply issues) so other HR measures will be necessary e.g. permanent contracts, revised
pay system/levels, team-working etc.

© Cambridge International Examinations 2015

 Page 8 Mark Scheme Syllabus Paper
Cambridge International A Level – May/June 2015 9707 31

Questions 6 and 7 use this marking grid:

Knowledge Application Analysis Evaluation

3 marks 3 marks 4 marks 10 marks

Level 3 10–7 marks

Good judgement
shown in text and
conclusions.

Level 2 3 marks 3 marks 4–3 marks 6–4 marks

Good Good application to Good use of theory to Some judgement
understanding case explain points made shown in text and/or
shown. conclusions

Level 1 2–1 marks 2–1 marks 2–1 marks 3–1 marks

Some Some application to Limited use made of Limited judgement
understanding case theory. shown
shown

6 Evaluate the usefulness of SWOT and PEST techniques to CCF’s directors when
undertaking strategic analysis before deciding on the future direction for the business.
[20]

Answers could include:

• Strategic analysis: Researching the business and the environment in which it operates
before formulating strategies
• Did Ed commission the SWOT and PEST before suggesting these 2 strategies? If not, the
process has been reversed which makes it less effective
• Essential to undertake internal analysis before major strategic development i.e. SWOT
analysis
• References made to actual SWOT – not very detailed – other points might be suggested
• Needs updating. Who did it? How subjective is it?
• External environment particularly important if market development is being considered (e.g.
country Y) or if major acquisition is planned (retail takeover)
• Helps to identify potential risks from external factors e.g. political instability which might make
investment in another country very risky
• PEST not very detailed – many other factors might be suggested.

Evaluation:
• Both are important but they are insufficient in themselves?
• Need to be more detailed and updated regularly
• If undertaken by external consultant more likely to be objective than if undertaken internally
• Other forms of strategic analysis needed too e.g. Ansoff, Porter, market research

© Cambridge International Examinations 2015

 Page 9 Mark Scheme Syllabus Paper
Cambridge International A Level – May/June 2015 9707 31

7 Evaluate how the directors of CCF could ensure that future strategic changes are
implemented successfully. [20]

Answers could include:

• Attempt to explain strategic implementation – trying to ensuring that significant changes are
incorporated into a business as effectively as possible with minimum resistance
• Formulation of long term goals and planning to meet them – this will aid the implementation
process for the strategic changes proposed
• Not much evidence of careful planning since CCF went public – clear objective but poorly
thought through strategies to meet it and no evidence of contingency planning/review system
• The major strategies being proposed will require clear and well thought out plans e.g. country
option will need market share objective (for example), appropriate tactics (marketing mix,
adequate budget/resources), review of strategy and contingency plan – e.g. if political
instability means that employees have to leave.
• A detailed (corporate) plan can help to ensure successful implementation
• Leadership of change not just management of change will be important. Is CCF’s
management team able to lead change effectively? Not much evidence so far.
• Need to improve communication to reduce resistance to changes e.g. relocation,
• Experience of retail management will be essential if the proposed takeover is to result in the
synergies hoped for.

Evaluation:
• Corporate planning can become too rigid and inflexible
• Not much evidence/experience of effective planning or leadership of change within CCF
• Some contingency planning will be essential if the strategies lead to major problems
• Other factors will affect successful implementation e.g. effective leadership/management of
change. CCF’s record here seems to be poor.

© Cambridge International Examinations 2015